Employment and Taxes

This paper considers the impact of taxation policy on market work. On the basis of theevidence, we find that a 10 percentage point rise in the tax wedge will reduce overall labourinput provided via the market by around 2 per cent of the population of working age. The taxwedge is the sum of the payroll, income and consumption tax rates.This only explains a minority of the market work differentials across count ries. Muchof the remainder is probably down to the differences in the social security systems supportingthe unemployed, the sick and disabled and the early retired.Employment, Taxation, Labour Supply

The Unemployment Challenge in Europe

Arbeitslosigkeit; Arbeitsmarktpolitik; Langzeitarbeitslosigkeit; Ungelernte Arbeitskräfte; EU-Politik; EU-Staaten

Poverty and Worklessness in Britain

Relative poverty in the UK has risen massively since 1979 mainly because of increasing worklessness, rising earnings dispersion and benefits indexed to prices, not wages. So poverty is now at a very high level. The economic forces underlying this are the significant shift in demand against the unskilled which has outpaced the shift in relative supply in the same direction. This has substantially weakened the low-skill labour market which has increased both pay dispersion and worklessness, particularly among low-skilled men. The whole situation has been exacerbated by the very long tail in the skill distribution, so that over 20 per cent of the working age population have very low skills indeed (close to illiterate). Practical policies discussed include improving education and overall well-being for children in the lower part of the ability range, raising wage floors, New Deal policies, tax credits and benefits for the workless. Overall, I would argue that without reducing the long tail in the skill distribution, there is no practical possibility of policy reducing relative poverty to 1979 levels.Poverty, Worklessness, Wage dispersion, Disability

Would Cutting Payroll Taxes on the Unskilled Have a Significant Effect on Unemployment?

This paper states two recommendations from an OECD Report: (1) "Reduce non-wage labour costs, especially in Europe, by reducing taxes on labourà" (2) "Reduce direct taxes (social security and income taxes) on those with low earningsà". After looking at the first recommendation we conclude that any attempt to generate a significant reduction in the unemployment rate by cutting across-the-board tax rates on employment is likely to fail. We then turn to the second recommendation and give three arguments as to why it may be a good idea. The remainder of the paper investigates the arguments. We look at why the unemployment rate of the unskilled might be higher than that of the skilled, and how we might expect their relative unemployment rates to respond both to relative demand shocks and to more natural shocks. We then examine the facts - what has happened to relative unemployment (and non-employment) rates, and wage rates throughout the OECD. Finally, we discuss the implications of these facts for the proposed policy measures.

Employment and Taxes

This paper considers the impact of taxation policy on market work. On the basis of the evidence, we find that a 10 percentage point rise in the tax wedge will reduce overall labour input provided via the market by around 2 per cent of the population of working age. The tax wedge is the sum of the payroll, income and consumption tax rates. This only explains a minority of the market work differentials across countries. Much of the remainder is probably down to the differences in the social security systems supporting the unemployed, the sick and disabled and the early retired.employment, taxation, labour supply

Nominal Wage Rigidity and the Rate of Inflation

Using the accurate and extensive data available in the UK New Earnings Survey, this paper investigates the extent to which nominal wages are downwardly rigid and whether such rigidity interferes with necessary real wage adjustments when inflation is low. Despite the substantial numbers of individuals whose nominal wages fall from one year to the next, we find that if long-run inflation is one percent higher, the number of individuals with negative real pay growth increases by around 1.4 percent. This is controlling for the median and dispersion of the real wage change distribution.Inflation, Wage Rigidity

Patterns of Work Across the OECD

Market work per person of working age differs widely across the OECD countries and there have been some significant changes in the last forty years. How to explain this pattern? Taxes are part of the story but much remains to be explained. If we include all the elements of the social security systems like early retirement benefits, sickness and disability benefits and unemployment benefits, then we can capture some aspects of the overall pattern but still a lot remains unexplained. The story favoured by Alesina et al. (CEPR DP.5140, 2005) is that the nexus of strong unions, generous welfare and social democracy implies both high taxes and pressure in favour of work-sharing in response to adverse shocks. This story, however, falls foul of the simple fact that most Scandinavian countries now do much more work than the French and Germans despite having stronger unions, more generous welfare, higher taxes and more social democracy. Ultimately, we are forced into the position that there is no simple story. Some of the broad patterns can be explained but there remain country specific factors which are hard to identify but lead to substantial differences from one country to another.work, working hours, employment

Wages

Empirical analyses of longitudinal data on some 66 manufacturing companies on Britain lead us to the following three conclusions. First, agreed reductions in restrictive work practices lead to increases in productivity. Second, controlling for such agreed reductions, there is some weak evidence that both relative pay and aggregate labour market slack have some positive impact on productivity. Third, falls in market share or declines in the financial health of companies lead to both lower pay rises and reductions in restrictive practices.

Technological Innovation and Performance in the United Kingdom

Over the period since 1970, Britain has improved its relative productivity performance, but there remains a significant gap in market sector productivity between Britain and both Continental Europe and the United States. Much of the gap between Britain and Continental Europe is due to lower levels of capital intensity and skill. However, even taking these into account, there remains a significant gap between Britain and the United States. This reflects not just a weakness in high tech areas but an inability to absorb best-practice techniques and methods in wide swathes of the market sector. Part of this is due to a weakness in technological innovation despite a high quality science base. This includes comparatively low and falling levels of R\&D and patenting as well as a distinct lag in the diffusion of innovations relative to other countries.Innovation, technology, productivity growth